Wait-and-switch

Why is Amazon.com debuting free digital downloads?

BACK IN THE PRE-INTERNET era, Public Enemy spat out an urgent rallying cry: "Don't believe the hype!" Then, faced with the potentially revolutionary concept of distributing its music over the Web, the famed New York hip-hop group changed its tune, first endorsing the controversial MP3 format and now joining hands in a free digital-download promotion with the hypemeisters at Amazon.com.

Every day a new product line: Is Amazon pursuing liquidity?

Related Content

When the self-proclaimed No. 1 online music retailer announced last week that it was offering 25 songs by well-known, respected, and even hip acts like Public Enemy, Lyle Lovett, and Elliott Smith, analysts and customers alike proved eager to believe. Such online news sites as CNet and MSNBC all but pronounced it the dawn of the digital music distribution era, and Amazon.com shoppers pushed four of the featured artists onto the site's top-five sales chart.

The implications for the music business, however, are less certain than that. Amazon.com is not so much ushering in a new era of music distribution as it is making a promotional ploy that brings the e-commerce side of record retail closer to the brick-and-mortar side. And it doesn't bring it that much closer: Amazon and competitors such as CDNow provide only downloadable 30-second song snippets, often of shaky quality, while customers in actual record stores can listen to entire CDs before they purchase them.

And the question of whether we're on the verge of buying the latest new band recording in digitally downloadable form over the Internet rather than in CD form from an online or offline retailer still hangs precariously over the industry. "There's no doubt it's going to happen," says Charlene Li, a senior analyst at Forrester Research. "It's just, who's going to do it first?"

Not Amazon, whatever the hype. Despite its current free download promotion and its position as a market leader, the company is being timid rather than aggressive. CEO Jeff Bezos appears willing to wait for the download technology to become widespread before committing to it himself. Amazon's music production manager, Greg Hart, while saying that "it's a question of when, not if" the company will sell digital downloads, won't comment on whether Amazon will sign on with current download-technology leader Liquid Audio Digital Music Distribution Services. Liquid Audio will be the first to begin enabling retail sites, possibly as soon as July, to sell copy-proof digital downloads, from 1,000 artists.

LIQUID AUDIO, THE SAME company that provides the sound file format for many of the downloads currently available on Amazon (the others are MP3 formatted), looks poised to lead the way. The company has a more secure alternative to MP3 and offers other features that make it attractive to record companies. Dick Huey, the senior director of new media at Beggars Group, which includes indie-label stalwarts such as Beggars Banquet and 4AD, says that his company will make thousands of songs available through Liquid Audio's digital distribution services. He says that the system is advanced enough for Beggars to sell Prodigy's albums in Europe but not in America, where the band is signed to a different label, Virgin.

Huey can't confirm a date for the rollout, and representatives from Liquid Audio won't comment because the company is in an SEC-mandated "quiet period," awaiting the status of its request for an initial public offering. But with TowerRecords.com jumping into the Liquid Audio bath with several hundred record labels, consumers who would prefer the convenience of digital downloading may soon be able to shop for records from home without having to wait for a CD to be delivered by mail.

Given Amazon's aggressive pursuit of online customers, it seems unlikely to want to leave such an opportunity to competitors. But some speculate that Amazon—as is indicated by its recent forays into auctions and greeting cards, and its rumored buyout of an online toy company—has changed from innovator to imitator, moving into new commercial fields only after pioneers have established them.

Amazon spokesman Paul Capelli tries to downplay the hype about digital downloading by highlighting the practical matter of the record industry attempt to settle on a single standard and secure system for distribution. The company is reluctant to commit its retail operation to the Liquid Audio standard only to have the industry's heavy hitters settle on something different. Rather than being the first to sell downloads by major artists in widespread fashion, then, Amazon will expand the current free promotional program—in part, no doubt, to keep customers pouring into the site. "We're watching what happens closely," Capelli says. "But we see the industry in the driver's seat."